Posts Tagged ‘congressional insider trading’

In a knee-jerk reaction to concerns that too many people may be required to disclose personal financial data, Congress quickly and quietly approved legislation over the past 24 hours to repeal major portions of disclosure requirements designed to ensure enforcement of the nation’s new law against congressional insider trading. President Barack Obama should veto this bad bill, and lawmakers should go back to the drawing board.

Lawmakers should have taken a more reasoned approach and approved a temporary suspension of the disclosure requirement for certain executive branch personnel, rather than an outright repeal. That way Congress could take the time to scrutinize the issue carefully and decide on changes to the congressional insider trading law that would allow for both personal privacy and enough transparency to limit conflicts of interest.

After years of inaction, Congress was finally compelled by public pressure last year to apply laws to itself against insider trading in the stock markets. The “Stop Trading on Congressional Knowledge” STOCK Act made congressional insider trading illegal and imposed online disclosure of personal financial activity by Congress and the executive branch so that compliance to the law could be monitored. Without this disclosure, the law will be difficult to enforce.

The STOCK Act mandated disclosure by approximately 28,000 executive branch employees, many not even senior-level employees, and Public Citizen agrees that this level of coverage may have reached too far. In response, we have asked Congress to consider appropriate remedies to change the scope somewhat to apply to appropriate senior-level executive branch employees.

Instead of this more sensible action, lawmakers hastily repealed disclosure for all but presidential appointees and members of Congress. The repeal (S. 716) even covers congressional staff, in an action that is both extreme and crippling to the STOCK Act’s enforcement mechanism. Unlike most executive branch personnel, congressional staffers have no conflict-of-interest restrictions on stock market investments.

Gutting a popular and much-needed law is unconscionable. Obama should veto this measure, and lawmakers instead should temporarily delay implementation of the disclosure provision for executive branch personnel below presidential appointees. Such a delay would provide Congress with an opportunity to scrutinize the issue more closely and offer more appropriate remedies.

What a sorry – but telling – display. The Republican leadership’s weakening of legislation banning congressional insider trading reflects its commitment to the hedge funds and Wall Street interests who lobbied against transparency of their trading activities that are based on insider knowledge gleaned in the halls of Congress.

Despite the fact that two-thirds of the U.S. House of Representatives sponsored strong legislation to ban congressional insider trading (H.R. 1148), and the U.S. Senate approved similarly sweeping legislation (S. 2038) by a 96-3 vote, House Majority Leader Eric Cantor (R-Va.) has permitted the House today to vote only on his own watered-down substitute measure

Cantor’s substitute deleted two of the most important components of the original STOCK Act – provisions requiring transparency of political intelligence consultants and strengthening the nation’s anti-corruption laws. Cantor’s decision to weaken the legislation, which was roundly condemned by congressional Democrats and Republicans alike, is a gift to the financial interests that oppose transparency of trades that exploit insider knowledge.

Given no other choice, the House approved Cantor’s weak version of the “Stop Trading on Congressional Knowledge” (STOCK) Act by a vote of 417-2.

All is not lost. Public Citizen urges congressional leaders to bring the measure into conference negotiations, where proponents of the more comprehensive version of the STOCK Act should secure the more meaningful original legislation. President Barack Obama is waiting to sign a strong STOCK Act into law, and the American public expects no less.

Written by Craig Holman, Public Citizen’s government affairs lobbyist, and Bartlett Naylor, Public Citizen’s financial policy advocate.

Applying the prohibition against illegal insider trading to members of Congress – shockingly, members of Congress and their staff are exempt from the law against insider trading – may come down to one leader: Rep. Spencer Bachus, chairman of the House financial services committee. Thursday, Bachus took a monumental step by announcing a hearing Dec. 6 on legislation to apply the insider trading laws to Congress where his own Wall Street transactions may be Exhibit A.

In response to allegations that Baucus may have used non-public information gleaned through congressional oversight for stock trades, the chairman released a letter Nov. 16 making several promising points. Chairman Bachus’ letter followed the publication of the book, “Throw them All Out,” by Peter Schweizer, and a related CBS “60 Minutes” broadcast.

First, the Alabama Republican wrote he did not profit from inside information. “The claim in the book is I shorted GE because I obtained ‘insider information’ that GE was having difficulty and its stock would likely go down. The truth is demonstrably the exact opposite,” he said. Shorting is a means of profiting from the decline of a stock price.

Second, the House leader most responsible for oversight of the agency that combats illegal insider trading stated that he has “a personal policy of not investing in financial companies under the jurisdiction of the Financial Services Committee.” In an interview, Bachus said he’s stopped trading in stocks when he became committee chairman.

Everybody knows that insider trading is illegal. Wall Street big wigs who get caught giving their cronies valuable information before it’s made public go to jail. Yet, those same rules don’t apply in the halls of Congress where members, their staffs and other federal officials can use the inside information they gather about upcoming legislation for their own financial gain.

Studies show that Congressional insiders do far better with their stock trades than you and I (See our earlier blog post) . A 2004 study found that investment returns for senators were 25 percent higher than for average investors. In a more recent study, Alan Ziobrowski, a business professor at Georgia State University, analyzed more than 6,000 stock transactions by members of Congress over a six year period and found that members outperformed the market by 1 percent a month and 12 percent a year, which Ziobrowski said was “way outside any random variation.” He and Craig Holman, Public Citizen’s expert on ethics and lobbying, talked about the issue on CNBC’s Street Signs and NPR’s Marketplace.

Yes, it seems amazing on its face. Under current laws (or lack thereof), members of Congress and high-powered executive branch appointees can exploit “insider” knowledge of the financial industry to turn personal profit.

Basically, had Martha Stewart been a member of Congress, she wouldn’t have been sent to the slammer for five months and ordered to wear an ankle bracelet for another five for convictions related to insider trading .